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How much does a 401(k) really cost?

When I was head of the Employee Benefits Security Administration (the Department of Labor agency charged with protecting pensions) during the Clinton administration, I became concerned about whether or not people who had 401(k) plans truly understood how much they were paying in fees and what those fees were for. So in 1997 and 1998, we held hearings and issued a report [PDF] on the issue.

A couple of months ago, I decided to take another look at the 1998 report to see what had changed in the last 10 years.

My conclusion? Not much has happened – except that a lot more workers are saving their money in 401(k) plans. That of course means that a lot more money is subject to fees. In fact, with more than $3 trillion in assets, these plans produce tens of billions of dollars in revenue for the financial companies who run them. But even a small difference in fees can make a huge difference in how much money you’ll have for retirement. The Government Accountability Office has estimated that a 1% increase in fees on an account that earns a 7% annual return will reduce total retirement savings by 17% over 20 years!

An employer has a duty to make sure that the plan pays reasonable fees. But the 1998 study found that many employers, particularly smaller companies, could not get sufficient information to make this judgment. It’s equally important for you – the consumer – to know how much you are paying for your 401(k).

Fortunately, things are about to change. Lawsuits have been filed over 401(k) fees. A bill is moving in the House of Representatives. More important, the Department of Labor has just issued proposed regulations to expand the fee information that is given to both employers and workers.

So far, it seems that the proposed regulations are a good first step. The Labor Department has recognized that people with 401(k) accounts have a right to know how much their investment returns are reduced by fees and how much they are paying for recordkeeping and other administrative tasks. But more can be done. The Pension Rights Center will be conducting an in-depth analysis of the proposed regulations and submitting comments to DOL to ensure that the final regulations provide the clearest and most useful information about fees as possible.

We welcome your input. Do YOU understand what you are paying for your 401(k) and what you get for it? Does your employer? Do you want and need more information? Let us know!


I declined to utilize my state agency employer 401(k) because the administrator charged 0.5% in addition to passing along any expenses imposed by the originating institution. I can set up a Roth IRA in the same investment vehicle, avoid the 0,5% fee, and have more control over my money. My agency doesn't offer any matching so there is not incentive to use the 401(k); indeed, there is disincentive. --We are the government and we are here to help you.--

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